Exclusive: Verizon Wireless Prepares for the iPhone

Verizon Wireless Prepares for the iPhone
Verizon Wireless is buttressing its network in the event Apple drops AT&T as the exclusive carrier of its popular smartphone

By Spencer E. Ante

There’s no telling yet whether or when AT&T (T) might lose its position as the sole U.S. carrier of the Apple (AAPL) iPhone. But in the event Apple opts to partner with other mobile-phone service providers, Verizon Wireless says it’s up to the task.

Verizon Wireless has even made upgrades that would make its network more capable of handling extra traffic that would be generated by the iPhone, Verizon Wireless Chief Technology Officer Anthony Melone says in an interview.

“We have put things in place already,” Melone tells Bloomberg BusinessWeek. “We are prepared to support that traffic.”

AT&T has come under fire for the spotty performance of its network. Vexed by dropped calls and slow download speeds, some consumers say the company was unprepared for the surge in traffic that’s resulted from iPhone use. Verizon Wireless in TV commercials has mocked AT&T’s network coverage, and Melone says his company’s equipment would do a better job catering to the heavy data demands of iPhone customers. “Absolutely, I think we could handle it,” he says.

Read the rest of the BusinessWeek story here.

Opening the Wireless Internet: The Importance of Carterfone

Federal Communications Commission chairman Julius Genachowski has come out swinging. You have to applaud his boldness. In the FCC’s first major inquiry since Genachowski took over the agency on June 29, the FCC has launched an inquiry into AT&T Inc. and Apple Inc. over the rejection of Google’s voice application for the Apple iPhone and App store.

On Friday, the FCC sent letters to executives at Apple, Google and AT&T, which is the exclusive carrier for the iPhone in the United States, saying it was “interested in a more complete understanding of this situation.”

The future of the wireless Web may be at stake. As Erick Schonfeld noted in a good TechCrunch post, there are two different Internets: the open landline Internet and the controlled wireless Internet. In the letter, the FCC’s acting Chief of its Wireless Telecommunications Bureau said that the inquiry was being made in conjunction with the FCC’s “ongoing proceedings regarding wireless open access and handset exclusivity.” In those inquiries, companies, including Skype, have asked the FCC to issue a declaratory ruling that the FCC’s so-called Carterfone rules apply to the wireless Internet.

In November of 2007, I wrote about Carterfone and the law professor, Columbia’s Tim Wu, who is trying to get the FCC to follow its landmark precedent requiring that communications networks remain open to any device or application. Wu is the professor who helped inspire Google to form its wireless strategy and petition the FCC to get it to force new wireless spectrum to follow rules of openness.

In February 2007, Wu published a paper in the International Journal of Communication proposing that the FCC apply the industry’s “Carterfone” rules to wireless.

It’s a fascinating case that carries huge implications for today. For decades, AT&T had prohibited consumers from attaching anything but its own phones to its network. In 1968, AT&T tried to bar the use of a “Carterfone”, which linked a mobile radio to a telephone.

But the FCC labeled AT&T’s move “unduly discriminatory” and allowed consumers the right to install devices of their choice. That decision enabled the creation of the fax machine and the Internet modem. Wu wrote: “The same rule for the wireless networks could…stimulate the development of new applications and free equipment designers to make the best phones possible.”

Now it looks AT&T could be getting embroiled in another historic shift. And history, and perhaps popular opinion, do not seem to be on their side once again. Decades ago Carterfone changed the future of communications. Today, Google Voice could stand for another watershed moment.

Verizon Wireless CEO Says More Netbooks on the Way In ’09

In the tech industry, netbooks are all the rage. So much so that even communications providers such as Verizon Wireless and AT&T are jumping on the bandwagon.

In a recent interview, Verizon Wireless CEO Lowell McAdam told me that the company’s number two priority this year is to broaden the line of devices and applications it offers to consumers. One part of that strategy is make a decent bet on net books. On May 17, Verizon Wireless began selling its first netbook, a Hewlett-Packard 1151NR, discounted to $199 with a two-year data contract starting at $40 a month.

But McAdam says the nation’s largest wireless carrier is signing contracts with other manufacturers, who he declined to name, to offer more netbooks later this year. “I expect we will have four or five more netbooks in the stores by end of the year.”

To learn more about the telecom carriers netbooks play, check out this BusinessWeek story that I worked on with Roger Crockett and Olga Kharif.

Obama’s $8 Billion Broadband Stimulus: Opportunity or Risk for Big Telecom?

Check out the new video I shot about the $8 billion Obama broadband stimulus and what it means for the nation’s largest telecom companies such as AT&T, Verizon Communications and Qwest. I shot it in preparation for the big online Web video project launching in late April. Hopefully I can tell you more about this very soon. But in the meantime, please enjoy the video!

Secrets of Big Telco: Why They Are Not Lining Up for Obama’s Broadband Plan

Today, BusinessWeek published a story written by Arik Hesseldahl and I, “Big Telcos Drag Their Heels on Broadband Stimulus.”

It reveals for the first time why some of the major telecom companies are dragging their heels on asking for federal money, and includes text from a letter we obtained from industry trade group, USTelecom (see it below).

Here’s the top of the story:
Big Telcos Drag Their Heels on Broadband Stimulus
Telecom giants are concerned that Washington’s $8 billion plan to promote broadband access will force them to open their networks to other providers

As Washington prepares to dole out some $8 billion to promote the spread of broadband access, don’t expect Big Telco to rush to the front of the line.

Some of the largest U.S. telecom operators, including AT&T (T), Verizon Communications (VZ), and Qwest Communications International (Q), are dragging their heels on asking for federal money. Some may sit out early funding rounds entirely or ultimately ask for only a sliver of the total.

Telecom giants are concerned that once finalized, the program will include burdensome regulations that will force them to open their equipment to rivals or otherwise hamper their ability to manage broadband networks, according to three people familiar with the thinking of the big service providers.

BUSINESSWEEK OBTAINS LETTER
That sentiment was captured in a Mar. 16 letter sent by industry group USTelecom to the Commerce and Agriculture Depts. and the Federal Communications Commission. In the letter, which was obtained by BusinessWeek, the group urged government officials to not let the broadband stimulus get mired down in contentious policy debates. “The agencies should not try to impose other requirements on grantees as part of this process,” wrote USTelecom CEO Walter McCormick.

Click here to read the entire letter.

A Glimmer of Hope: Can the ATT and the Telecom Industry Help Create Jobs?

Check out my appearance on Fox Video News yesterday talking about AT&T and the tech and telecom job market.

One point I did not have time to mention was that spending by AT&T and other tech giants has a multiplier effect on job creation. So when the company spends $18 billion on capital expenditures, that leads to thousands of new jobs from the companies that make the equipment that AT&T buys.

Another example: AT&T also announced this week that it would spend up to $565 million to replace more than 15,000 gasoline-powered vehicles with a fleet powered by compressed natural gas and hybrid engines.

The Dallas-based company’s plans would be the largest corporate purchase of natural-gas vehicles. It plans to buy 8,000 Ford trucks and vans and convert them to natural gas engines. The company also plans to replace 7,100 passenger vehicles with hybrids over the next 10 years.

The nonprofit Center for Automotive Research, in Ann Arbor, Mich., said the AT&T vehicles would also reduce carbon emissions by 211,000 metric tons over 10 years, equivalent to the annual emissions of 38,600 gasoline-powered passenger vehicles. The organization estimated the initiative will create or save 5,000 jobs, between manufacturing the vehicles and building and operating CNG stations. AT&T is planning to work with natural gas providers to build up to 40 new fueling stations across its operating region.

Wireless: The Outlook Gets Murkier for Clearwire

BusinessWeek just published my story on what many folks consider broadband’s best hope for injecting more competition in the market for high-speed Internet access.

It’s about Clearwire, the WiMax startup founded by wireless pioneer Craig McCaw. The company has a very bold (and expensive) vision for rolling out fast Internet access through the ether but it’s getting caught up in the credit crunch right now.

Here’s the top of the story:

Last May some of the biggest names in the technology and media business, including Intel (INTC), Google (GOOG), Sprint (S), and Comcast (CMCSA), teamed up to invest $3.2 billion in the startup Clearwire (CLWR). The Kirkland (Wash.) company founded by entrepreneur Craig McCaw had high hopes of shaking up the wireless industry. The idea was that Clearwire would offer an alternative to the two big incumbent U.S. operators, AT&T (T) and Verizon Wireless, by rolling out a technology called WiMAX that could provide superfast Internet service for cell phones, laptops, and other devices.

Today, Clearwire is just trying to keep its head above water. Although sales are on track to rise 50% this year, to $230 million, analysts expect the company will lose $715 million. Billions more in losses are projected for the coming years as Clearwire invests heavily to roll out its network. Clearwire needs to raise billions in additional capital in the midst of the worst economic downturn in decades or it will be forced to slow the pace of its rollout and give AT&T and Verizon a chance to gain ground in the race to build next-generation wireless networks.

Clearwire’s stock has plummeted 90% since its peak in mid-2007. The sharp fall has prompted backers to announce write-offs on their investments, including a $950 million charge by Intel, a $355 million charge by Google, and a $350 million charge by Time Warner Cable (TWC). Comcast is expected to follow suit.

Click here to read the rest of the story.

Why Randall Stross and the New York Times Don’t Get Wireless

Here’s the beginning of a post I just published on BusinessWeek’s Tech Beat blog:

This Sunday, New York Times business columnist Randall Stross devoted his column to dissing the U.S wireless industry for doubling the cost of text messages to consumers to 20 cents from 10 cents. But what really got Stross lathered was his claim that the cost of transmitting text messages is far less than the public supposedly assumes.

Stross backed up his argument by quoting Srinivasan Keshav, a computer science professor at the University of Waterloo, who said that “it doesn’t cost the carrier much more to transmit a hundred million messages than a million.” Stross also noted that 20 class action lawsuits have been filed around the the country against AT&T and other carriers, alleging price-fixing for text messaging services.

Stross is not only flat out wrong, but his argument is overly simplistic and suggests that he doesn’t really understand the economics or business model of the wireless industry.

Let me explain.

First off, it costs more to send more text messages–contrary to what Stross and Keshav claim. Verizon Wireless, AT&T and Sprint declined to speak with Stross. But James Gerace, a spokesman for Verizon Wireless, told me in an email that the company “had to invest an additional $200 million in the network just to accommodate the ’08 volume in text messaging.” That is not chump change.

“This op-ed is bunk,” wrote Gerace, adding that he sees the Times story as an example of “trial lawyers placing it looking for a new revenue stream.”

Second, Stross totally discounts the price of wireless spectrum, which is really, really expensive. In the most recent spectrum auction, wireless carriers and other technology companies paid an astounding $19.6 billion to acquire the nation’s most desirable remaining airwaves. Yes, Stross mentions that the “carriers pay dearly for the rights to use” spectrum. But in the next breadth he writes off the cost by noting that text messages are “free riders” that piggyback on the control channel of the wireless network.

This gets me to my last point. Stross doesn’t seem to grasp the current economics of the wireless biz. Here’s the deal. The voice side of the business is becoming increasingly commoditized. So the future success of the industry hinges on the ability of carriers to grow the revenue they get from data services such as text messaging, wireless web surfing and wireless applications.

That’s the fundamental reason why carriers have doubled the price of text messages from 10 cents to 20 cents over the last few years. I have no idea if the carriers engaged in price fixing. If they did, they should be punished. But there is a legitimate economic reason why they have raised prices for individual text messages.

Click here to read the rest of the post.

Telecom Monday: Telcos Face the Credit Crunch and Moto’s New Android Phone

Today, BusinessWeek Online published two must-read stories. One, by my colleague Olga Kharif, breaking the news that troubled handset maker Motorola is hard at work developing its own Android-based device.

Writes Olga:
“Motorola has been showing spec sheets and images of the phone to carriers around the world in the past two months and is likely to introduce the handset in the U.S. sometime in the second quarter of 2009, according to people familiar with Motorola’s plans.”

The second story, written by me, explains why the telecom industry won’t be able to escape the wrath of the financial crisis.

Writes me:
“Although most analysts believe the damage won’t be nearly as bad as the last telecom bust—when hundreds of firms went bankrupt, including giant Worldcom—there is growing evidence that the financial crisis is going to depress the debt-heavy telecom industry. To start with, rising capital costs are likely to take a bite out of earnings. In addition, the softening economy will probably crimp demand for such telecom services as land lines, cell phones, and Internet connections.”

Verizon Wireless and RIM Unleash Storm

Today I published a story in BusinessWeek about the new phone from Research In Motion, the Storm. Verizon Wireless and Vodafone struck a life-time exclusive deal to offer the first Blackberry touchscreen device.

I also break the news that Verizon Wireless has jumped on the latest wireless trend: It is setting up an online bazaar where customers will be able to download a range of games, tools, and other applications for use on the Storm. On Oct. 9, the company will release a toolkit designed to help software developers build applications for the application store, dubbed the App Zone.